1). Gwens business is expected to grow in 2022. She has applied for an additional bank overdraft to invest in working capital. However, the bank has asked for a cash budget for the next six months ending 30/06/2022. Gwen has provided the below additional information: 1. Sales revenue for January will be 18,000. As a result of the new products she is introducing, revenue will increase at the rate of 10% per month until May and will remain the same thereafter.

2. 40% of total sales will be for cash and 60% on credit. Credit customers are expected to pay one month after the sale is agreed. Trade receivables brought forward from December are expected to pay the full amount in January.

3. Gwen will purchase enough goods to satisfy the demand for each month and an additional 10% for the following month. 60% purchases will be paid a month after purchase and the balance will be paid two months after purchase. Purchase price will be 60% of the selling price. Trade payables brought forward from December will be fully settled in January.

4. Payment for electricity is expected to be 600 in March and 400 in June. The unpaid bill from 2021 was fully settled in January.

5. Unpaid wages of December 2021 will be paid in January. The salary and wages for 2022 will rise 10% and employees will be paid on a monthly basis.

6. Gwen will withdraw 1,550 per month to pay for her personal expenses.

7. A new machine will be purchased in February for 30,000

8. Insurance for the current year will increase by 5% and will be fully paid in advance in January.

9. The shop premises will continue to be rented for 16,000 per year until April. The annual rent will rise to 17,100 from May. Rent is paid on a monthly basis.

10. On 1/04/2022 Gwen will pay 1,400 for business rates. Required:

i) Prepare a cash budget for Gwen for the six months of January to June 2022. N.B: Show full workings and add notes if necessary so that Bank can understand how the numbers were calculated.

(ii) Gwen is not sure why the bank asked for the cash budget; she was of the view that Income Statement and Statement of Financial Position would be sufficient for the bank to evaluate her overdraft application.